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America’s Rehearsals for Retirement

May 28, 2013Laura Tyson
As the first wave of America’s baby boomers begins to retire, the retirement system is revealing its flaws. While a recent international comparison gave the US a passing grade of C, for a large and growing number of Americans, the system is failing.

BERKELEY – As the first wave of America’s baby boomers begins to retire, the retirement system is revealing its flaws. More than half of all workers (and more than 60% of low-income workers) are at risk of lacking sufficient savings to maintain their living standards after they stop working. In a recent international comparison, America’s retirement system received a passing grade of C; but, for a large and growing number of Americans, the system is failing.

The slow recovery from the Great Recession has exacerbated the challenge. Homes are most Americans’ major retirement asset, and, despite a recent pickup, housing prices are still 28% below their 2006 peak, while 28% of all homeowners owe more on their mortgages than their property is worth.

Discretionary employer retirement plans are a major pillar of America’s retirement system. But nearly 16 million Americans are either unemployed or have dropped out of the labor force, while more than half of the jobs created during the recovery are low-wage positions that usually do not offer such plans. By contrast, most of the 625,000 public-sector jobs lost during the recovery offered generous pensions.

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Laura Tyson, a former chair of the US President's Council of Economic Advisers, is a professor at the Haas School of Business at the University of California, Berkeley, and a senior adviser at the Rock Creek Group.

The great motivator has always been a promise. The problem is that so many have fallen off the stage that those that are left may end up responsible for the cast that has no more current calls. I'm not so sure what it all means but one more dream needs to be looked at realistically if there's any chance of a golden parachute for those without the hopium that used to smoke so well.

Here is one, usually unwelcome, view from the resource depletion perspective. There are no real savings, the top 20% are at risk. Savings mean deferred consumption. No one is deferring(storing grain for the seven lean years). You have to put some actual resource aside,for instance leave some cheap oil in the ground.
Retirees will not be able to eat their paper assets,or the digital assets. They will compete with other generations for the restricted remaining real assets. Both insurance companies and pension plans of all current types will not fulfill promises. Retirement is a transient flawed concept made briefly possible by cheap fossil fuels. Disability is the real concern. Plan to be as productive as possible forever. Be nice to the people around you,you never know.

What we need to do is raise taxes on those lazy 20-35 year olds. They are obviously lazy since they have higher unemployment than those 50-65. We need to raise rates high enough that they stop wasting their money having children and pay for their parents and grandparents retirement. That way our system can be fully solvent forever.
However, let's do it without them knowing by
1) increasing the taxes of their bosses who will respond by either raising the price of their products or cutting wages (or automating jobs kicking those lazy young adults to the street)
2) Increasing the cost of employment of each new worker by adding on more regulations to every employer
3) Raising taxes on everyone (except retirees or near retirees or the wealthy who game the system through advanced accounting practices) in order to raise retiree rates to 80% of pre-retirement income

And we need to remember the words of our declaration of independence that declared "all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are Life, Liberty, and a State sponsored retirement for the projected final 20 years of their life."

It's nice that after all of these years, and well over a decade since your tenure as the head of the Council of Economic Advisors, that you have noticed that too many retiring Americans are left without significant retirement savings or a pension. Instead of allowing President Clinton to make such a big deal over federal subsidies for 100,000 new cops, why didn't you recommend some type of mandatory 401K with a mandatory contributions? There has to be a national, self-financed pension plan where contributions accumulate over many decades with significant market exposure. The government could then easily issue self-amortizing bonds that could be purchased as workers approach retirement.

The State must create conditions to channel a substantial part of the savings towards retirement as the primary step, followed by making regulations on pension funds rock-solid that creates the unimpeachable trust among the insured that they have explicit / implicit protection (guaranteed and market risk is not transferred to the individual); the transfer of savings into funds and then annuitizing that Capital would need special efforts on the part of the State, the first one would need incentives like exonerating from tax-burdens and the second one would need enormous amount of trust building over decades.

There is no better example in the world of all this than the Swiss system of Three Pillars; no wonder they have three fourth of the population annuitizing rather than going for lump sum pay outs. Their system is worth studying if not emulating in total.

Gap in retirement funds and low pensions are directly contributing to higher unemployment and lower GDP. People, who would otherwise be happily retired are forced to work more years, and so are taking jobs from younger generation.

Why it is so, you can read at: www.genomofcapitalism.com chapter 4.3

The main problem is in thinking about financial flows between workers and pensioners as tightly coupled: that is we can have only as high pensions as we saved or taxed. But this is not so.

Any decline in pension funds because of recession or any mismanagement of financial economy has no impact on availability or REAL resources pensioners are using: retirement houses, healthcare, leasure, food....

All these resources are still there, waiting to be utilized. If beacuse of failure of "FINANCIAL" redistribution would-be pensioners cannot afford them, these available resources and industries providing them start to suffer as well, with resulting unemployment, decline in profits, taxes.... and the vicious circle of recession grows even more.

It is important to understand this and government should directly supplement inadequate pensions of people who worked all their lives. This is possible with moderate expansionary monetary policy in connection with fully digital financial system and its benefits. (full theory at: www.genomofcapitalism.com)